Can You Trade Exotic Currencies?
Forex trading is where people buy and sell currency and make money on the disparity of the two currencies. They will buy currency ‘A’ against currency ‘B’ in the expectation that the price of A will rise against the price of B after some time. If the currency does not increase its worth, it will close its trade with a profit. However, if the value of the currency declines, the dealer will suffer a loss.
When you trade Forex on a website, you exchange it as an Over Counter (OTC) operation. This means that you are speculating about the movement of currencies against each other, but don’t necessarily take physical possession of the actual resource (in this case, money). You take out the resulting income (or, in some situations, the loss)
The foreign exchange or Forex market is the biggest financial market in the world, responsible for more than $5 trillion a day in trades, covering currency trading operations in numerous markets, companies, and banks around the world. At this point, even big stock exchanges such as the NYSE, the London Stock Exchange, and the Tokyo Stock Exchange are rivaling!
The exchange rate is among the most important indices of economic well-being in the countries concerned. High prices mean that they can easily import or purchase products and services, while low rates mean that they can quickly sell or export goods and services. That is why the monetary policies of the central banks are always aiming for a reasonable equilibrium at their prices.
WHAT ARE EXAMPLES OF SOME EXOTIC PAIRS?
- Exotic Forex pairs include currencies from developing economies combined with major currencies.
- Exotic Forex pairs are pairs that transact in low amounts and have reduced liquidity.
- They seem to include emerging or powerful yet smaller economies.
- Such exotic currencies are combined with a global currency to make up an exotic pair.
- As mentioned above, exotic pairs are not commonly exchanged, and, as a result, the cost of trading these pairs can be greater.
What Is An Exotic Currency?
Exotic currency is typically the currency of developed nations in regions such as Asia, Africa, the Middle East, and the Pacific.
Typically, these currencies come from countries with developing markets or small but stable markets.
Some of the most popular exotic currency pairs:
Exotic currencies are not particularly attractive for markets, and the quantities exchanged for exotic pairs appear to be small. Owing to low trade volumes, exotic currencies lack liquidity and active strategy.
However, simply because an exotic currency trades at low rates does not always mean that it is the wrong currency.
What renders an exotic pair undesirable to some traders?
As we discussed earlier, exotic pairs are exchanged at a far lower frequency than other currency pairs, but why? Exotic currencies will also shift due to a weak economy or political turmoil that makes them incredibly unpredictable. Rapid volatility can lead to a sudden increase or a decline in the value of the country’s currency.
Owing to high uncertainty, investors would need higher spreads. This is meant to compensate for some substantial detrimental variations in the value of the currency. Spreads are larger on foreign currency values than their majors or minor counterparts.
What Is The Most Profitable Currency To Trade?
There are still more than 200 currencies in the world that you can exchange. Out of these, there are just a couple of full currencies that will make enormous profits. They include:
The EUR / USD
The EUR / USD currency pair is considered the haven of currency trade. This pair has the most incredible consistency and is easily predictable. This currency pair is vulnerable to main factors such as the monetary policy of the US and the central banks of the EU. The value of this pair can also be calculated based on:
- The economies of both the USA and the EU
- Liquid derivatives of EUR and USD;
USD / JPY
Next is the (USD / JPY) in the pair. The pair is the top currency quotation in the Asian world. As such, this makes the previous pair a capable rival. The USD / JPY ranked 2nd in the liquidity of the currency exchange market, accounting for 17 percent of trades in the currency industry.
The pros and cons of trading the USD / JPY are:
- Has a high degree of liquidity much like (EUR / USD)
- Easy to forecast market trends using technical research
- The USD / JPY ranks second as a dynamic currency pair on the market, thereby giving a lot of volatility.
GBP / USD
After the USD / JPY quotes are GBP / USD, the USD / JPY currency pair accounts for around 12% of the world’s traded currencies. GBP / USD is characterized by high values that are also unpredictable. As such, this makes them a renowned pair of competitive and strategic traders based on swift income. Note that the currency pair is influenced heavily by the British economy. It also relies on the decisions of the US Federal Reserve as well as the Bank of England.
The (AUD / USD) and the (USD / CAD) respectively
Last in the list are the AUD / USD and the USD / CAD currency pairs. Both currencies are tied to the prices of gold and steel, the leading producers of oil and gold.
WHAT ARE THE 8 MAJOR CURRENCY PAIRS?
Now, let’s take a glance at some of the most traded currencies, but for the sake of this article, each of them will be simplified by a series of pair nicknames. Now let’s look at what has in store as well as what makes unique Forex trading relationships important.
EUR / USD
As a result of the sheer global popularity of each currency, many investors consider this to be the biggest currency trading pair. It is also important to remember that the United States dollar is still the number one currency in terms of the sheer scale of trade. It is also clear that many analysts would look at the USD / EUR partnership regularly.
USD / JPY
Each of the eight big currency pairs to consider. As the abbreviation indicates, the worth of the US dollar is measured against the Japanese yen. As several denominations in this article, the Japanese yen is one of the G10 currencies. It may also be a benchmark in terms of global economic stability.
GBP / USD
The British Pound Sterling (GBP) and the United States Dollar are one of the major Forex pairs. Not only does this mean the amount of each one that exchanges hands regularly, but it is also because both countries have close economic relations. The prices of these “majors” will also be leveraged against each other since the pound is traditionally higher than the dollar.
USD / CHF
CHF is another currency traded against the US real. Of the eight major currency pairs mentioned in this article, this pair is one of the most conservative. Since the origin of the Swiss franc is not directly related to the EU. As a consequence, it can be used as a shield in times of uncertainty.
Each of these eight global currency pairs is labeled with the dollar ($) symbol. The Canadian dollar appears to be marginally weaker. Many selling American dollars will then opt to buy a CAD if the Canadian currency is supposed to rise.
AUD / USD
The Australian dollar and the US dollar are both widely traded. One benefit here is that buyers would be able to exploit any development happening in the Far East without having to compete with other currencies such as the Yen or the Chinese Yuan.
NZD / USD
The same idea alluded to above about the Australian dollar is also used when trading the NZD against the US dollar. As the New Zealand economy is heavily dependent on commodity markets, this is one of the eight major currency pairs that might be the perfect option for traders seeking to take a more cautious stance.
This is one of the many major Forex pairs that are frequently known as “crosses.” The word “cross” is used when relating to any pair that does not equal the value of the US dollar. Many who are suspicious of the state of the American economy, or who would otherwise pursue individual currency alternatives for Forex, should go for such trades.